Click here to recieve updates directly to you e-mail

Monday, April 10, 2017

Arizona Mining PEA review

So, a few days late we got the PEA summary PR. Over the next month or so we should expect them to upload the complete report to SEDAR.COM and maybe a copy on their website in the next 45 days see bottom of page 8).

There is a lot of information in the press release, and it is a taster to what we will see in the full report that will be released around mid-May.

Summary:

  • Robust numbers
    • NPV $1.26B
    • IRR 42%
  • Cost per tonne looks inline with other operations @ $48.08/tonne
      • Fresnillo = $43.93 tonne
      • Saucito = $36.75/tonne
      • Cienega = $55.49/tonne
  • All infrastructure will be within the Patented Trench concessions (i.e. the private land)
  • Initial production planned for 2020, but will take 3 years to ramp up to 10,000 tpd
    • year 1 ~4,000 tpd
    • year 2 ~7,000 tpd
    • year 3+ - ~10,000 tpd
  • According to the PEA - they will commence mining in Q4 2020, or 42 months from now
    • ground breaking will start in 8-9 months, before the completion of the Feasibility Study.
    • This is very aggressive

Questions

At this stage, we don't need to focus on the rocks. Any issues (e.g. Mn) can either be engineered out or they take a penalty charge at the smelter (i.e. increased CAPEX or decreased revenues). My initial questions are?
  • What permits and easements do they need to bring services to the mine (electricity, access)?
    • I know that the project will be on private land, but getting things to and from the mine site will require road upgrades and power-lines crossing Forest Service land?
    • what local opposition will there be to this?
  • The biggie - if they are going to commit to an aggressive development timeline, won't they need to have something more than "keen, ongoing interest in our future concentrates"?
  • What impact would (if they do ahead with it) a silver streaming deal do to the economics of the deposit?
When the PEA is released I'll be looking at the surface footprint and see if they have included all infrastructure. Occasionally they include all the important stuff (mine, waste dumps, tailings dams etc.), but miss off mine offices, service yards, storage areas etc.

Concerns

The timeline is aggressive, I'm going to call it a 'perfect' timeline, assuming that all parts of the process run to the minimum  - no opposition, no delays and Mr. Murphy goes on holiday for 3 years. I'm not sure that this is achievable, as they have to raise money (a small $457M), sign contracts, obtain permits, build declines, mills, roads, shafts etc.

Metal prices are relatively high:
  • Silver = $20/oz
  • Zinc = $1.10/lb
  • Lead = $1.00/lb
The other big concern I have is the comment that they can raise significant funds via selling a silver stream.
  • Raise $200-350M selling the silver - normally done at $5/oz
  • silver represents 15% of the mine revenue @ $20/oz
  • At $5/oz, this decreases to:
    • $27.5M from $110M, or decreases the revenue by 12%
  • what impact will this have on the IRR, NPV and payback period?